European
Committee
B

Tuesday
29 March
2011

[Mr
Peter Bone in the
Chair]

Annual
Growth
Survey

4.30
pm

The
Chair: At this stage I would normally call a member of the
European Scrutiny Committee to make an opening statement.
Unfortunately, the hon. Member for Luton North is unavailable and has
given his apologies, and the business managers did not appoint two
members of the European Scrutiny Committee as they should have done, so
we will have to omit that part and go straight to the
Minister.

4.31
pm

The
Economic Secretary to the Treasury (Justine Greening):
Thank you, Mr Bone, and it is a particular pleasure to serve under your
chairmanship for the first time. I am sorry to hear that we do not have
a representative from the European Scrutiny Committee; nevertheless I
welcome the Committee’s comments and its suggestion that this
important document be referred to this Committee for debate.

The European
Scrutiny Committee rightly suggested in its report that the
Commission’s annual growth survey is an important document, both
intrinsically since it deals with growth, and more specifically given
its role in getting the new European semester under way. I therefore
welcome the chance to debate it in this Committee. Let me say how
timely this debate is, coming just days after the Chancellor set out
the Budget and the Government’s “Plan for Growth”,
and following even more closely on the heels of the spring European
Council last Thursday and Friday, where EU Heads of State and
Government discussed some of the toughest issues that we collectively
face.

Ensuring
lasting stability and fiscal sustainability in the eurozone and in the
EU as a whole is essential if we are to prevent another crisis as
serious as this one. The scale of the challenge is huge, and it is in
all our interests to ensure that a lasting solution can be found. While
that is essential, without economic growth we will not be able to
secure a lasting recovery from the crisis. The recovery in the EU is
fragile and, as the Commission said, “rather uneven”
across member states. The Commission forecasts gross domestic product
growth in 2012 of 4.2% in Poland, 2.5% in the UK, 2% in
Germany, 1.8% in France, 1.4% in Italy and 0.8% in Portugal. The
Commission also estimates that aggregate unemployment is 9.6% across
the EU. More alarmingly still, in some member states youth unemployment
can be as high as
40%.

The
annual growth survey reports that the state of structural reforms
across the EU is also somewhat uneven, pointing to what the Commission
considers to be a lack of ambition on the part of member states. This
is disappointing, particularly in light of the

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Commission’s own stark warnings that failure to reform our
economies would mean average potential growth of only 1.5% over the
coming decade, coupled with a permanent loss of output. It is therefore
up to the EU and its member states to take decisive action to promote
growth. Of course, that is exactly what we sought to do in last
week’s Budget.

Alongside
fiscal consolidation and a more competitive financial sector, we need a
targeted structural reform programme to unleash enterprise and make our
whole economies more competitive. A joint letter calling for targeted
action at the EU level to promote growth was sent on 18 March to
President Van Rompuy and President Barroso, with the support of nine
member states, including the UK, which took the lead. That set out that
at the EU level we must, first, deliver the full potential of the
single market with an approach to liberalisation focusing on sectors
with the highest growth potential such as services, digital and energy;
link European and global markets to improve trade, including by
concluding the Doha round this year; support business and unleash
enterprise by removing regulatory burdens; and create the conditions
for innovation to flourish. These are the areas that will make the
greatest difference to growth: completing the single market, including
by breaking down borders to online trade and by liberalising service
provision across the EU. Together they could add up to €800
billion for the EU economy.

Reducing the
burden of regulation on our businesses is also vital to help unleash
creativity and innovation. The average cost of starting a business in
the EU is a massive €2,285, compared with just €644 in
the United States. The Government recently announced a one-in, one-out
policy for new regulations, and we are pressing for the EU to take the
same approach. In parallel, it is important that there be strong action
at member state level. We need to open up product markets, liberalise
labour markets, promote enterprise and reform welfare. Those must be
our
priorities.

In
the UK, the June 2010 Budget and last year’s spending review
took a bold range of measures to address the exceptional conditions
facing the UK economy and to tackle the UK’s record deficit.
That action was essential to create the necessary conditions to boost
the UK’s long-term economic potential and help to create
jobs.

In the 2011
Budget released last week, the Chancellor announced further action that
supports a new model of private sector-led, sustainable and balanced
growth, while keeping the plan to tackle the deficit on track. The
Government’s “Plan for Growth”, issued alongside
the Budget, has four overarching ambitions: to create the most
competitive tax system; to make the UK the best place in Europe to
start, finance and grow a business; to encourage investments and
exports as a route to a more balanced economy; and to create a
more educated work force that is the most flexible in Europe. Major
measures were also announced that will contribute to those goals,
including reducing the main corporation tax rate again, introducing new
controlled foreign company rules, fundamentally reforming the way the
planning system works, and reducing the burden of regulation with which
businesses have to comply.

The Budget
also sets out the next steps toward realising the Government’s
vision of a fair, simple and efficient tax, benefit and pension
system—one that rewards work

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and personal responsibility and, at the same time, enables social
mobility. It reduces the tax burden on low and middle-income workers
and helps with the pressure of high fuel prices. Much work lies ahead
of us, which is precisely the reason why the Government support a
strong and effective European semester. The European Commission has
promised an integrated approach to reforms and surveillance, which
should help to join up better macro-economic stability and structural
reforms between EU and member state levels and between the various
Council formations that take an interest in the growth agenda. Overall,
robust surveillance and ruthless prioritisation are essential for a
successful European semester, and the Council’s 10 priorities
highlighted in the annual growth survey appear to be broadly the right
ones.

I end by
highlighting the fact that, despite the improvements brought about by
the European semester, the Europe 2020 strategy and the broader growth
agenda are still dependent on political will for their implementation.
The Government will therefore use their interventions in Council to
shore up the resolve of our European partners. We have taken a
leadership role in conducting the spending review, in the emergency
Budget and in last week’s Budget, and I trust that the Committee
will support us in our
endeavours.

The
Chair: Thank you, Minister, for staying within the time
guidelines. We now have until 5.30 for questions to the Minister. I
remind Members that questions should be brief, but if I agree,
supplementary questions may be put as well, and obviously you can ask
more than one
question.

Kerry
McCarthy (Bristol East) (Lab): It is a pleasure to serve
under your chairmanship, Mr Bone.

I have
several questions on the various sections of the annual growth survey,
starting with priority 1, which is about implementing rigorous fiscal
consolidation. Of course, we agree with the European Commission that
public expenditure must be put on a sustainable track, but does the
Minister not agree that we are failing to do that when, as result of
weaker than expected growth, Office for Budget Responsibility borrowing
forecasts to 2015 have already been raised by some £46 billion?
If the Government’s fiscal strategy results in recession and a
wider fiscal deficit, do they have a plan B for putting the public
finances on a sustainable track, so that we are in tune with the
Commission’s request?

The
Commission says that tax rises may be necessary and that indirect taxes
are more growth friendly than direct taxes. Does the Minister not
accept, however, that the former are more regressive, with the poorest
having to pay the most? Although it is not necessarily evident in their
actions, I am sure the Government would in theory say that it should
not be the poorest who pay the most, so how do we square that with the
stance on taxes set out by the Commission?

Justine
Greening: I understand the hon. Lady’s question and
why she asks it. We are on the right course—that is backed up by
a number of independent commentators. First, she will be aware that the
OBR, whose change in forecasts she mentioned, still says that we are on
course to achieve our mandate to get rid of the structural

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deficit by the end of this Parliament. I should also point out that, in
its employment projections, it expects to see a net 900,000 jobs
created, over and above those that are lost in the private
sector.

I
also draw attention to the people outside the UK. We are talking about
the European Union today, and President Barroso stated on 17 June last
year:

“I
want to pay tribute to the efforts the UK coalition government is
taking. We believe they are exactly taking the right medicine for the
situation.”

As
the hon. Lady will be aware, the OECD Secretary General Angel Gurria
stated, only this January, that the UK “should stay the
course”, and added
that

“the
fiscal situation absolutely requires this
approach.”

The
IMF stated last
year:

“The
consolidation plan and implementation of early measures to tackle the
deficit—one of the highest in the world in 2010—greatly
reduces the risk of a costly loss of confidence in fiscal
sustainability and will help rebalance the
economy.”

We
are on the right track, and it is not only the coalition Government who
think that; a number of other agencies
agree.

In
answer to the hon. Lady’s question about tax changes and how to
stimulate growth, she is right to say that one of the points made in
the annual growth survey was a criticism of taxing labour. That is one
thing that would hold back growth across Europe. That is one reason we
got rid of the proposed national insurance rise—the so-called
jobs tax. That was absolutely a tax on labour. In response to the
question whether that might mean a swing towards indirect taxes, and
whether that would be regressive, it is interesting that the Institute
for Fiscal Studies is now saying that looking at household spend in
relation to total expenditure is a more valid way of understanding
whether tax changes are regressive. I also point out to the hon. Lady
that taking action on taxes on labour—for example, in raising
the personal allowance twice, both in the emergency Budget and in last
week’s Budget—is a direct tax measure, but it clearly
helps those on the lowest incomes because it takes them out of tax
altogether. There is not necessarily a correlation between whether
taxes are progressive or regressive and whether they are direct or
indirect.

Karl
McCartney (Lincoln) (Con): It is a pleasure to be called
by you, Mr Bone. To counter what the hon. Member for Bristol East said,
will the Minister comment on the fact that the GDP figures have been
revised back upwards recently, which is to be
welcomed?

Justine
Greening: My hon. Friend is right. Today we got the final
estimate for the quarter 4 growth figures from last year. They were
revised slightly upwards. As he will know, they were disappointing
figures, but we had an incredibly challenging month in terms of the
weather and we have ended up broadly where we started, with the Office
for National Statistics saying that growth was flattish. What is
important is the measures in the Budget last week, which aim to
stimulate growth, enterprise and jobs over the coming months and years.
As I said in response to the hon. Lady, the OBR says that we are on
course to do that. Our strategy will achieve that. We are not the only
people who think that: the European Commission, the IMF and the OECD
agree. We are in good company in hoping that we are getting our economy
back on track.

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Ms
Gisela Stuart (Birmingham, Edgbaston) (Lab): It is a long
time since I have been on European Committee B. Is it in order for me
to wrap three questions into one, Mr Bone, or would you like me to ask
them
separately?

The
Chair: I think it would be better if we took them one by
one. We will get to them
all.

Ms
Stuart: Thank you. My question is specifically about the
report, because it is always a bit futile to argue domestic points on
the back of European issues. The report states on page
2:

“Europe
2020 is the agenda that the EU and its Member States have decided to
‘help Europe recover from the crisis and come out stronger, both
internally and at the international
level’.”

What
reason does the hon. Lady have to believe that the 2020 statement will
be any more successful than the 2010 Lisbon agenda, by which definition
we would now be the world’s leading competitive and innovative
European
economy?

Justine
Greening: In many respects, although we welcome the annual
growth survey, the hon. Lady is right to have healthy scepticism.
Publishing a strategy called “Europe 2020” will not be
enough. We shared her disappointment about the lack of traction and
impact that the Lisbon strategy ultimately had. We can see its lack of
impact by looking around Europe’s economies.

It is
important to ensure that “Europe 2020” makes a difference
on the ground. There is a better chance of that today because one
criticism of the Lisbon strategy, as the hon. Lady knows, is that it
was too broad. It was not specific enough, but we believe that the 10
priorities set out in the annual growth survey is a better list. There
is a risk that the list will grow, however, and we must ensure that it
remains targeted. The hon. Lady will be aware that some of those
priorities are there to tackle economic imbalances and the deficit;
they are not long-term things that need to be in the growth
strategy.

Alongside
that, what is different this time is the idea of having a European
semester. It is not just about the “Europe 2020”
strategy. We know that action is being taken to tackle fiscal
consolidation measures and European imbalances. The strategy is part of
a broader package that is happening at the EU level to ensure that it
makes a difference. I would also say that the strategy is a good
challenge to the EU. It is good that we have a document that says that
regulation too often holds back business, and that taxes on labour hold
back companies from recruiting more workers. The Government need to
ensure that those messages in the annual growth survey are not
lost.

Ms
Stuart: Secondly, I went through the graphs and was trying
to work out the difference between European member states and
non-European member states. They are on forecasts, growth rates and
structural deficits, and it seems to me that there is little
differentiation between EU member states. The graphs on page 20 show
net external financial liabilities for euro area states and non-euro
states, but it states:

“Data
are not available for Cyprus, United Kingdom, Malta and
Luxembourg.”

Does
the Minister have any idea why UK data were not
available?

Column number: 8

Justine
Greening: It may be better if I write to the hon. Lady
separately about that. One problem we have with the annual growth
survey is that it wants many countries to bring forward a number of
different targets. We declined to enter targets for parts of the annual
growth survey because we believe that it is about action on the ground;
I suspect that it may be part and parcel of
that.

Ms
Stuart: Finally, I was glad to hear the Minister talk
about the completion of the single market by including services. The
Prime Minister said something similar yesterday. However, I have yet to
receive an answer from the Secretary of State for Health or the Prime
Minister, and I hope that the Minister will give me an answer today.
Following the legislation that we are putting through on the NHS and GP
fundholding and commissioning, will all our NHS transactions be subject
to internal services competition law?

Justine
Greening: As we make progress on having a more liberalised
market for services, I suspect that we will need to consider how it
affects the NHS. Again, I am happy to write to the hon. Lady on that
point.

A further
point on the services agenda is the plethora of professional services,
and professionals who are less able to move around the EU as a result
of what is effectively a less free market in that area than we have on
products. We are keen to move ahead with that agenda,
too.

Nigel
Mills (Amber Valley) (Con): May I ask the Minister to give
us the Government’s response to comments in the report of
threats to modernise the VAT system? I know she has received various
representations in recent days on potential changes to the VAT system.
Indeed, Mr Bone, I know that you are keen to make suggestions on how to
modernise it.

The
Chair: Order. As Chairman, I have no view whatever on what
is going
on.

Nigel
Mills: I am sorry, Mr Bone.

The recent
OECD report suggested that we ought to modernise our VAT system by
reducing the number of zero-rated or reduced rate items. Will the
Minister assure us that no pressure is coming from the EU or, if there
is, that there is no chance of the Government’s going down that
route?

Justine
Greening: First, we are committed as a Government to
retaining our zero-rated VAT products and services. As my hon. Friend
knows, the process for changing the list of products and services that
are exempt from VAT, at zero rate, reduced rate or standard rate is
long drawn out. It is one reason why the suggestion of the shadow
Chancellor and other Opposition Members of reducing VAT on fuel is
simply illegal at the moment and almost certainly unworkable. The
previous time, it took nearly seven years to revise the
list—indeed, the process concluded only in 2009. At the time,
the then Labour Government did not try to make VAT on fuel anything
other than standard rate. I can also reassure my hon. Friend that part
of the process—one reason why it takes so long and is so
difficult—is agreement by

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unanimity. If one country disagrees, no deal can be done. That is
another reason why the Labour party’s proposal for reducing VAT
on fuel is
unworkable.

Nigel
Mills: As a supplementary, for complete clarity, will the
Minister assure my constituents that the current lower rates on
children’s clothes, food and so on are therefore perfectly safe
and that there are no plans to change them in this
Parliament?

Justine
Greening: I can give my hon. Friend that commitment. We
want to maintain all our zero-rated goods and
services.

Sammy
Wilson (East Antrim) (DUP): It is a pleasure, Mr Bone, to
serve under your chairmanship.

Priority 10
in the document talks about access to cost-efficient energy and
outlines the reason for
that:

“Energy
is a key variable for growth. For business, energy prices are a key
cost
element.”

Will
the Minister outline how she sees that priority fitting in with many of
the European directives to which the Government are responding? For
example, in the Budget, we are setting a carbon floor price of
£30 per tonne, which will add £1.4 billion to the cost of
industry in year four of the Budget. There are also the targets for
renewable energy, which will be much more expensive than some of the
traditional forms of generating energy. What is the Government’s
assessment of the impact of all those energy changes from Europe on
firms’ ability to
grow?

Justine
Greening: One of the good challenges of the annual growth
survey is driving that conversation more frequently. The carbon floor
price that was announced in the Budget is part of a range of tools that
the Government are introducing to help our economy transition from its
current higher carbon base to a lower carbon base. That is ultimately
in all our interests because it means that we will spend less on our
energy than we would if we did not go through that
transition.

Given some of
the challenges that a high oil price poses to our economy, last week,
as hon. Members pointed out, we took the opportunity to reduce fuel
duty rather than allow what would have been a 5p rise. Apart from the
carbon emissions agenda, which is important, trying to get our economy
more off the oil hook clearly has a broader benefit to
business.

The
hon. Gentleman is right that, in the short term, we need to be careful
that we work with business to understand how the transition will affect
not only energy security, but costs for businesses. One reason why we
announced the extension of climate change agreements was that we were
conscious of how the transition would affect energy-intensive
industries. We need to ensure that we put in place the right investment
to get us to a low-carbon economy, while at the same time showing
awareness of the risks of doing that and the need to help companies
that will need to change their investment profile as they go through
the transition. We are aware of the risk, and we pay close attention to
EU work to achieve
that.

I
should also tell the hon. Gentleman that we have pushed against
discussions about an EU carbon tax. Aside from the fact that we think
that tax is a matter for

Column number: 10

member states—for the UK Government here—various EU
economies are in different positions on the low-carbon agenda, so we
should decide how we want to manage the transition. The emissions
trading scheme operates at an EU level, and we think that that is the
appropriate
tool.

John
Hemming (Birmingham, Yardley) (LD): I was pleased to hear
the Minister’s answer to the hon. Member for Amber Valley about
VAT being a progressive tax according to expenditure deciles, but I
would welcome her assurance that the Government would oppose any
proposals on VAT that would stop it being progressive and make it
regressive.

Justine
Greening: We want taxation to be broadly progressive.
Although this has been the subject of debate by the House, when we take
together the emergency Budget, the spending review and last
week’s Budget, that shows that we have managed to put in place a
plan that tackles the fiscal deficit but means that those with the
broadest shoulders bear the most. We will take that ethos into any
debate in Europe about such a
change.

John
Hemming: I thank the Minister for that answer. I hope that
she will recognise that although people on means-tested benefits get an
increase to cover indirect costs, we need to protect those on low
incomes by maintaining the tax-free nature of essential day-to-day
goods.

Justine
Greening: That point reflects the comments that I made in
response to my hon. Friend the Member for Amber Valley. It is important
that we give a commitment that zero-rated products will remain as such.
Many goods are zero-rated for precisely the reason that, like previous
Governments, we understand the importance of their not creating an
extra tax burden for those who have less flexibility with their
consumption.

John
Hemming: My second question relates to the point raised by
the hon. Member for East Antrim. The problems of growth that we face
and the loss of production in the European economy have arisen due to a
number of factors: banking, the incompetence of the previous
Government—that is, of this country—and a spike in the
oil price. I, like several hon. Members, feel that geological
constraints such as peak oil will cause difficulties. Beyond the 20%
reduction in energy usage over the next 10 years that is cited in the
report, do the Government think that Europe has a role in trying to
keep down day-to-day fuel
prices?

Justine
Greening: Broadly, we see ourselves as able to take
decisions at domestic level. There are a number of levers we can pull,
in terms of tax, as we demonstrated last week in the Budget by reducing
fuel duty, and in domestic policies on spend; for example, the warm
homes discount. Let us not forget that next year we shall be launching
the green deal, to address the underlying problem and to help people
not to waste energy and to make their homes more energy-efficient.
Whenever VAT is discussed at European level, countries have different
opinions about how they would like the regime to change, but there are
a number of levers that the

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Government can use, and are using, to make sure that we address fuel
poverty. As the hon. Gentleman is aware, Professor Hills will be
conducting a review on it on the Government’s
behalf.

Andrea
Leadsom (South Northamptonshire) (Con): On that point, can
my hon. Friend talk about the binding renewable energy target we have
with the EU? From my research, it seems that wind technology accounts
for enormous rises in fuel prices and in electricity prices for
households. If the Government could renegotiate the renewable target so
that it was not a switch into renewable usage but a net reduction
target, we could focus on spending the money on insulation and reducing
our thirst for energy instead of on generating highly expensive sources
of renewable electricity. That might actually help households during
this very pressured time, but in fact the target is forcing us to spend
more money on potentially less valuable
technologies.

Justine
Greening: I absolutely understand the point my hon. Friend
has made. We are committed to our share of the renewables obligation,
but she is right to flag up the fact that if we are putting a certain
amount of public money against the transition, we need to be clear what
the bang for our buck is, and where we think we can make the most
difference in reducing emissions for every pound of taxpayers’
money that is being put
in.

We
have to recognise that different technologies are developing at the
same time, and although at this point wind may be more or less
effective than other renewables, we are keen to make sure that the
market itself can develop, so that over time a greater variety of
renewable technologies help to generate energy. The final piece is the
Budget announcement about the green investment bank, which will
initially be capitalised with £3 billion. That will leverage in
private sector capital, hopefully, to help stimulate investments for
other technologies—and indeed offshore wind—that have
been held back and have not developed as fast as they otherwise
would.

Andrea
Leadsom: I absolutely accept all that my hon. Friend says
and I completely welcome the Government’s initiatives. Denmark
has the most expensive domestic electricity in Europe and the Danes are
the biggest users of onshore wind. Their experience has been that more
people went into fuel poverty as a result of the high cost of
generating wind power. It still concerns me that the binding target
means that we are spending taxpayer money on renewable obligation
certificates, putting up the cost of domestic electricity for private
households, instead of spending the money where we should be—on
getting people to reduce their need for
electricity.

Justine
Greening: I probably cannot add too much to what my hon.
Friend says. Her comments demonstrate why we need a broader approach to
tackling not only the switch to renewables but also energy efficiency
in homes and businesses. As she says, the switch can be part of the
action plan, but it is not enough on its own, and I
agree.

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Nigel
Mills: I have a couple of questions about the corporation
tax issues raised in the document. The first is about the threat to
move towards introducing a common consolidated corporate tax base,
which would be an entertaining situation given the wide disparity in
corporation tax regimes across the EU. At a time when we are trying to
enhance our competitiveness by reducing our corporation tax and
reforming our corporate tax base, does the Minister agree that a common
consolidated corporate tax base would not be a great idea for this
country?

Justine
Greening: I agree. All tax matters are best dealt with by
member states. In the UK, our plan is to have corporation tax for large
companies on the main rate, but for the rate for small companies to go
down. We announced a further reduction in corporation tax last week, so
we know what we want to achieve on corporation tax and we do not
necessarily need direction from the EU to help us. We think it should
be our
decision.

Nigel
Mills: There is what seems a welcome comment in the
document about taking away the tax treatments that disadvantage
cross-border trade. Many of us would be attracted to that, but there is
a risk: one way of taking away that disadvantage is to introduce it on
trade within a territory, which happened when transfer of pricing rules
were extended to same-territory transactions. That adds a huge burden
to companies and businesses. If we rightly take out disadvantages, may
I urge the Minister to ensure that we do not do it by extending
unnecessary burdens to domestic
transactions?

Justine
Greening: I completely agree with my hon. Friend. The
annual growth survey challenges member states to ascertain what they
can do to support business and to remove bureaucracy, regulation and
red tape, not load on more tax. Indeed, it encourages them to do the
exact opposite. We recognise that, in the United Kingdom, areas such as
Northern Ireland may need additional flexibility on corporation tax to
compete more effectively. We launched our paper on rebalancing the
Northern Ireland economy last week, and we particularly recognise the
need for Northern Ireland to make its own decisions about corporation
tax so that it can compete
effectively.

Craig
Whittaker (Calder Valley) (Con): Interestingly, on
balancing security and flexibility in the work force, the document
states that member states’ employment protection has created
great rigidity in the labour force. It says that we need reform to
reduce overprotection of workers, particularly those with permanent
contracts. Will the Minister give an opinion on whether she feels that
the UK labour market is over-regulated with regard to protectionism for
employees? Will she give us a clue about the Government’s
direction on reducing the rigidity that arises through
overprotection?

Justine
Greening: My hon. Friend is right. We need to challenge
the plethora of regulations that employers face. He will know that one
of the aims of “The Plan for Growth” is having a more
skilled but flexible work force in the UK. I welcome the European
Union’s saying that legislation should be reformed to reduce
overprotection of workers. I agree with the observation that we are

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right to ensure that workplaces have regulations to
protect workers, but that sometimes we can gold-plate. It is in
nobody’s interest for those regulations to go beyond what they
need to achieve and harm businesses, thus preventing them from
operating efficiently, growing and taking on more workers. We are keen
to address that domestically. As my hon. Friend knows, we announced
last week that we will have our own domestic regulatory review. That
will not just be about regulation in the workplace, but will apply
across the board. We will, perhaps for the first time, take a new look
at all our regulations across Government to challenge ourselves and the
stakeholders whom they affect on whether they are absolutely necessary
or whether we should take a second look at
them.

The
Chair: Everyone in Committee who is allowed to
speak has spoken, but I am minded, if we get close to 5.30, to extend
the time.

Ms
Stuart: Thank you, Mr Bone. I want to ask a very specific
question. The Minister and I will probably not agree about the need for
workers’ protection, because I happen to believe that
it is a good thing. However, I sometimes wonder about the
consumer’s protection. Will the Government specifically examine
some of the provisions on free movement of labour, mutual recognition
of workers and our inability to insist on English language tests for
doctors who come and work here? Surely we should insist on professional
standards, which include the ability to speak the language. As I
understand it, we currently cannot do
that.

Justine
Greening: The hon. Lady raises some serious, thorny
issues, which arise through our being in the EU and the free movement
of labour aspect. I know that Ministers in the Department of Health are
considering the matter because we must ensure that free movement of
labour rights are balanced with others—for example, that of
patients to be able to communicate effectively with a doctor who is
there to treat them. So I think we do want to see a better balance, and
I and the rest of the Government believe in making sure that we have
rights for workers and rights in the workplace. We are saying that that
needs to be done in a way that does not ultimately harm employees by
making it more likely that companies will feel unable to employ people,
because the regulations go above and beyond what any of us think
necessary to ensure we strike that right
balance.

Kerry
McCarthy: On labour flexibility, the UK already has weaker
employment protection than many other EU states, which is frequently
cited as a reason why companies choose to locate here, and is
frequently criticised by, for example, the trade union movement, which
says that it is easier to make employees redundant here. Has the
Minister done an analysis comparing employment legislation and the
flexibility of labour, for example, across EU countries? To my way of
thinking, the section of the document in question is aimed not at the
UK but at countries that have more rigid labour markets, and we should
not be seeking to act on it to the extent that the Minister seems to be
suggesting.

Justine
Greening: The reason why this area of the document has
formed such a large part of today’s debate perhaps has more to
do with the fact that Members have taken a particular interest in it. I
direct the hon. Lady to “The Plan for Growth”, published
last week,

Column number: 14

which goes into some detail about how we think regulations ought to be
challenged in order to free up the labour market.

The
Government agree on priority 6—on getting unemployed people back
into work—which makes the point that unemployment benefits
should not trap people into dependency. Of course, we introduced the
universal credit to ensure that the right incentives exist for people
to get back into work. What is also important—although the
document does not particularly flag it up—is that people who are
out of work understand what benefits they are entitled to, and that
they are not faced with the current, incredibly confusing benefits
system as they come out of the work force and spend some time
unemployed. This is a particularly important issue. Of course,
“The Plan for Growth” was about not only growth, but jobs
as
well.

Kerry
McCarthy: I shall return in a moment to
priority 6 and the benefits system, but I want first to
pursue the employment protection issue. On “The Plan for
Growth”, there is some confusion about, for example, the
switching of paternity-maternity leave for employees and small
companies, and the right to request flexible working. Some people are
suggesting that small companies will be excused from current
provisions; others are saying that this merely flags up that we will
resist any future attempts by the European Union to impose further such
requirements on small companies. Can the Minister clarify: are we
simply saying that we will resist further protection for such workers,
or do the Government plan to cut some of the existing
measures?

Justine
Greening: We said that we want a moratorium on the
smallest companies being burdened by new regulation, but beyond that,
we recognise, as the annual growth survey points out, that there is
overprotection of workers in some cases and we need to look at issue,
which the EU has flagged up. We went through “The Plan for
Growth” with different companies and stakeholders and had some
1,000 meetings, and the consistent message was that, rather than
cherry-picking individual regulations, we needed to have a look across
the board.

As all of us
in this House know, we pass statutory instruments and other such
regulations pretty much every week, but we have never stood back and
said, “What’s there, and to what extent is some of it now
out of date or not fit for purpose?” Perhaps the legislation in
question is old-fashioned and refers to a Britain and a workplace from
which we have simply moved on. The Government are saying that we need
to look not only at new measures coming down the track, but at existing
ones to make sure they are fit for purpose. That is in
everybody’s interests. That debate will be helpful not only for
business, but for workers who too often get frustrated by regulations
around which they have to fit in the workplace, although they do not
see how they especially help
them.

Kerry
McCarthy: The Minister has already touched on universal
credit and protection for the unemployed, but the Commission says in
priority
6:

“Member
States need to adapt their unemployment insurance systems to the
economic cycle, so that protection is reinforced in times of economic
down-turn.”

Column number: 15

Will she explain what
she understands by that phrase? Perhaps the Commission is suggesting
that when economic times are bad, benefits should be more generous to
reflect the fact that people find it more difficult to find work. I
know that some European countries have schemes whereby a percentage of
people’s earnings in work are paid to them during a period of
unemployment. Does the Minister think that the recent measures
introduced by the Government, particularly in the past Budget, reflect
the Commission’s point that protection should be reinforced
during an economic
downturn?

Justine
Greening: My understanding is that that part of the annual
growth survey relates to the conclusions adopted in March by the
Employment, Social Policy, Health and Consumer Affairs Council, which
talked about the need to review extensions to the duration of benefits
that were introduced in some countries as a response to the economic
crisis. As the hon. Lady is aware, this is a matter of broad debate
throughout Europe, and it will be explored further this year under the
European employment
strategy.

Kerry
McCarthy: In priority 3, which is titled “Ensuring
stability of the financial sector”, the Commission calls for the
accelerated restructuring of
banks

“and
particularly those which received…state
aid”.

Will
the Minister enlighten us about what the Government and United Kingdom
Financial Investments Ltd intend to do about that? Do they think the
process can be accelerated in the way the Commission
suggests?

Justine
Greening: We support the steps that are being taken to put
financial services throughout the European Union back on a sustainable
footing because that is in everyone’s interests. As the hon.
Lady will be aware, we are doing that in the UK. The whole financial
services industry was affected by the Basel III requirements, and we
hope that, when those requirements are taken alongside the crisis
management package, there will be support in place to enable financial
services throughout Europe to get to a more sustainable position from
which they will not require future taxpayer
support.

Sammy
Wilson: Although we all understand the importance of
restructuring the banks, there is a worry that such
restructuring—this is in the context of Northern Ireland but
there are cross-border considerations—could result in the loss
of at least two banks in Northern Ireland that are based in the
Republic, perhaps due to the closure of their loss-making Northern
Ireland operations. In addition, the increase in the capital base will
reduce banks’ ability to lend. Given present concerns throughout
the United Kingdom about bank lending, and especially given the
possible impact of restructuring in Northern Ireland, how does the
Minister think that the situation will fit with the Government’s
stated aim of making finance more available to small and medium-sized
enterprises?

Justine
Greening: The hon. Gentleman is right to highlight the
real challenge that at the very time when we want banks to be out
there, lending to business, they

Column number: 16

have been left in a weakened state because of the financial crisis. As
he will be aware, we have managed domestically to reach an agreement
with the banks, called Project Merlin, which absolutely got an
assurance that they will lend 15% more than they otherwise would.
However, there is no getting away from the fact
that we must make sure that a better framework is in place at the
European level to ensure that we help banks to get back on to a
sustainable footing. I should emphasise, though, that we are absolutely
adamant that day-to-day banking regulations should remain the
prerogative of member states, and that is indeed what will
happen.

Nigel
Mills: Page 22 of the document
states:

“Based
on recommendations from the Commission, the Council will issue
country-specific policy guidance before the summer that Member States
should take into account when preparing their budgets for 2012 and in
implementing their growth
policies.”

Will
the Minister confirm what she understands by “take into
account”? I assume that we should read that to mean
“consider, but happily ignore if we don’t agree with
it.”

Justine
Greening: Perhaps I would put it more diplomatically, but
there is no doubt that the end of the process is that member states
have to produce a national reform programme in April, after which the
Commission, and indeed the Council, will debate whether those national
reform programmes are fit for purpose. Of course, at that stage, we
will get some recommendations, although —my hon. Friend
is right—they are recommendations. We are therefore not duty
bound to follow the recommendations or otherwise, but “The Plan
for Growth”, which we published last week, is very much in line
with what the annual growth survey says that member states need to do,
so we are moving in absolutely the right direction. In many respects,
however, I very much welcome the opportunity to see other member
states’ national reform programmes, as well as the opportunity
for us, as a country and a Government, to challenge them. We probably
need such a healthy debate in Europe. The EU is a key export market for
us, so it is in our interests to ensure that all economies, including
our own, get back on their
feet.

The
Chair: If no more Members wish to ask questions, we will
proceed to debate the
motion.

Motion
made, and Question proposed,

That the
Committee takes note of European Union Document No. 18066/10 and
Addenda 1, 2 and 3, relating to the Annual Growth Survey: Advancing the
EU’s comprehensive response to the crisis; supports the
Government’s objective of promoting strong, sustainable and
balanced economic growth in the EU, with particular regard to EU-level
actions aimed at strengthening the single market and trade, enhancing
innovation and ensuring smarter EU regulation; welcomes the
Commission’s new Annual Growth Survey and its focus on the
urgent need for the EU and its Member States to promote economic growth
and employment; and urges the EU to ensure that policies align with the
need for EU growth and jobs and the need to reduce
deficits.—(Justine
Greening.)

5.22
pm

Kerry
McCarthy: The Opposition will not oppose this fairly
broad-brush motion. We are happy that the process is part of an ongoing
series of discussions about the direction of economic policy in the EU
and the UK’s place within it.

Column number: 17

Although the
priorities in the strategy might be necessary for growth, they are not
in themselves sufficient to deliver growth. For example, while I accept
the Minister’s argument about cutting red tape, each individual
regulation might also be described as protection or someone’s
enhanced terms and conditions, so we must keep an eye on the cumulative
effect of such an approach, as we do in Delegated Legislation
Committees. Cutting red tape in itself, however, will not deliver
growth. While it might lead to an advantage in the longer term, it is
not a growth strategy. We have considered that matter during the Budget
debate—such consideration is probably going on in the Chamber at
the moment—so I shall say no more about that point. However, I
flag up the fact that there is a lot more to a growth strategy than
what is in the
document.

The
Commission’s paper is particularly silent about the need to
invest in the UK’s infrastructure and skills base. It is also
silent about the effect of rising unemployment and falling tax receipts
on the public finances, and therefore the need to ensure that people
stay in work. I am sure that the point is also being made in the more
general debates about the UK’s Budget that it is not enough
simply to give the private sector its head through taxes and
regulations and say, “Here you are. Go off and create economic
growth.”

There are
also issues about infrastructure, training and skills. That applies not
only in the UK but on a Europe-wide basis. It is one thing to take the
path of saying, “We’re going to make life easier for
British business by cutting taxes and regulation”, but I am sure
that the Minister accepts that, for Britain to compete in the European
economy and worldwide, we need a skilled work force and investment in
new technologies, industries and sectors. That is an essential part of
a growth strategy. By and large, it cannot just be left to the
market.

The
Commission is silent about the long-term effects of unemployment,
particularly on young people. There was some talk about flexible
working, but nothing addresses what to do when people are caught up in
long-term unemployment. The longer they are unemployed, the more likely
they are to be unemployable in future. That should be
addressed.

The
Commission is concerned about macro-economic imbalances—the
mismatch between highly indebted countries with current account
deficits and those with current account surpluses. The UK’s
public sector net debt is low by EU and G7 standards, and very low by
historical standards. However, private sector and household debt is
high, and many economists believe that de-leveraging that debt could
hold back the UK’s economic recovery. The Commission’s
document suggests that wage restraint and reconsidering indexation in
wage-bargaining systems is the answer, but it seems unlikely that
reduced earnings, which appear to be suggested, will help people or
businesses pay off their debts.

Wages in the
UK are already restrained. Excluding bonuses, they are growing by only
1.8% at the moment while prices rise by 5.5% on the retail prices
index. Will the Minister clarify the Government’s policies on
indebtedness in the UK? Do they support the Commission’s
suggestions on
that?

On
some matters, the Government have gone further than the European
Commission document. I have already mentioned employment legislation
and linking benefit

Column number: 18

systems to the economic cycle. The Government have reduced
benefits—I will not go into detail about all the different
changes—but, for example, changes are being pushed through to
tax credits and child benefit when economic growth is low and even
negative.

Of
course, we accept the need for a co-ordinated approach at European
level to the economic situation, but Labour Members do not accept that
simply cutting legislation and public spending is sufficient for a
growth strategy. To put public finances on a sustainable footing, we
need to support businesses and employment
now.

The
UK’s particular situation should be taken into account in some
matters. I appreciate that a document of this size, which is much
smaller than the bundle of documents that we normally get in European
Committee B meetings, will be fairly broad brush and general. However,
on macro-economic imbalances, indebtedness and employment protection,
policies that may support growth in other parts of the EU are either
not needed or already being implemented in the UK. If I flagged up only
one point, it would be that, in the context of trying to work at a
European level, we must still fight Britain’s corner and ensure
that aspects on which we have made progress and are doing better than
the EU—particularly, for example, employment
protection—do not go out the window in an attempt to standardise
things.

5.29
pm

John
Hemming: I hold a minority view in my party, which is not
that of the Government or the Opposition. I have concerns about
constraints on the supply of fossil fuels. People call it the peak oil
hypothesis, but at some stage global production of oil will obviously
peak. It is important from an economic and a European point of view
because one of the causes of the current financial problem is a spike
in oil prices. When we look at the price sensitivity of demand, it is
not actually that sensitive. People keep on buying the oil, because
they have no real choice, even though the price rockets. Therefore, one
of the difficulties is that if we end up in a period—as I think
we are in now—where oil supply is constrained, we will see a
number of price spikes occurring from time to time. Those spikes cause
massive economic damage, and damage people’s lives because they
have difficulty running their lives day to day.

Although we
talk about getting renewable energy, which is the sensible thing to do,
one of the proposals on an international basis is for tradeable energy
quotas. The objective is to have a quota for affordable energy and
price stability, so that people can plan day to day; but it is only a
quota, and the rest is effectively driven by market demands. The
important point about that proposal is that the whole of the
world’s wealth does not then go to the middle east while we pay
a ludicrously high price for oil.

My
expectation is that the proposal will not be taken particularly
seriously, although I have raised the issue with the international
payment bodies, because they need to put into their protocols the
facility to take such action. However, if we encounter price spike
after price spike over time and the associated economic disruption, the
quotas option will need to be looked at. I wanted to put that on the
record. I accept that the Government do not support such quotas, but
they need to be looked at

Column number: 19

on an international level, because the alternative is to sell everything
to the middle east to get our oil, which is not a sensible
alternative.

5.31
pm

Justine
Greening: We have heard very interesting contributions
from the hon. Member for Bristol East and of course from my hon. Friend
the Member for Birmingham, Yardley. I thank the Committee for this
afternoon’s constructive exchange of views.

The hon. Lady
is right that the “Europe 2020” strategy will not be
enough on its own. We must ensure that that strategy translates into
action on the ground. The annual growth survey is one way we can make
sure that that happens. She also said that different countries are
perhaps in different regulatory positions and have different labour
markets, so they might want different degrees of regulation. She is
right, and it is one of the reasons why we have been very keen to fight
our country’s corner in Europe. However, it is also recognised
that each member state has to produce its own individual national
reform programme, which will then get a tailored response from the
European Commission and the European Council. Therefore, part of the
European semester process should ensure that we get a more thoughtful
analysis, tailored to member states, of what needs to be done across
Europe at EU level to drive growth than perhaps has been the case
before.

I heard the
hon. Lady’s point about the need to ensure that there is more
material on different sectors. I agree with her. Part of “The
Plan for Growth” was about asking, “What can we do for
several key sectors explicitly to help to drive growth?” Those
sectors include manufacturing, which has halved during the last decade.
That focus on different sectors is important.

The private
sector is one thing, but of course, the hon. Lady’s other point
was that the public sector remains critically important. That is one of
the reasons why we are engaged in so much reform of public services. We
want to ensure that public services deliver for people in the 21st
century and that they are fit for purpose for Britain today.

I challenge
the hon. Lady on one issue. She made some constructive and helpful
comments about the annual growth survey, but here in the UK many people
would be very keen to see her party’s plan for growth. We
published a plan last week that was holistic and detailed, containing
well over 100 individual measures to help stimulate companies, jobs and
growth. It would be good to see her party’s plan for growth, and
its plan for tackling the fiscal deficit. As we know, April is just a
few days away. We are a few days away from the time

Column number: 20

when Labour would have put in place £14 billion of cuts, had it
remained in government, yet we still have no idea what those cuts would
have been.

The
Chair: Order. I think we are drifting away a little from
European growth and on to Labour party plans. We should stick to
European growth.

Justine
Greening: That is a good idea, Mr Bone. There are no
Labour party plans, so it is very easy for me to move back to the
motion.

The
hon. Lady mentioned skills and young people, which is important.
Interestingly, the youth unemployment rate in the UK is slightly lower
than the European average, although it is still too high. It was going
up under the previous Government and as we come out of recession we are
particularly keen to make sure that we focus on getting young people
into work. It is one of the reasons why, last week, we talked about
100,000 more work placements for young people and 50,000 extra
apprenticeships. Focusing on getting our young people into work is key
for this Government.

The hon. Lady
also talked about imbalances, and the fact that the growth survey
refers to countries in surplus and those in deficit. I can assure her
that we are one of the countries in deficit, which is why we are taking
steps to tackle that problem. Making sure that we have the right
incentives for people to get back into work is a key part of tackling
that deficit. As the hon. Lady pointed out, people who are not in work
are not only unproductive; there are associated benefits costs. She
briefly mentioned the universal credit. It is interesting that many
other countries are already studying our proposals on the universal
credit to see whether it can be adapted to their own social
models.

It is
probably premature of me to comment on the thoughts of my hon. Friend
the Member for Birmingham, Yardley on peak oil. No doubt he will pursue
them with vigour, as is his wont on matters that take his interest, and
I am sure he will be very effective. We will all look with interest to
see how those thoughts develop.

I welcome the
broad consensus we have shown today on the actions we need to take at
EU level. The Government will therefore continue to press the case for
reforms and we will continue to show leadership in the EU. In the next
few days the Prime Minister will launch our EU growth paper, as part of
our contribution to the debate about how we can drive growth across the
European Union, and I believe that the Committee has given the
Government a mandate to prioritise growth ruthlessly at the EU
level.